The chief economist at ratings agency Moodys is warning that the U.S. could be headed for a renewed recession.

The Economy (left) is heading south, while joblessness (right) continues to to rise

Calling the current situation “very perilous,” John Lonski adds that
the politicians in Washington, where both parties are vying to present
budgets featuring massive cuts in spending, could help bring on that
recession--just as the new Conservative Party-led government in Great
Britain brought on a return to recession this year through its
aggressive cutting of public spending.

Worse yet, they could create a
new shut-down in credit or “liquidity” in the financial industry that
“could be more serious even than what caused the collapse of Lehman
Brothers” in 2008.

Lonski, in an interview with ThisCantBeHappening!, said,
“What scares me is that, because of the weakened condition of the
federal government, there is less confidence in the philosophy of `too
big to fail’-- the idea that the government will come in and back up any
financial company that runs into trouble.” He said the government is
probably no longer in a position to make trillions of dollars available
to prop up failing big banks as it did in 2008 and 2009, and that
fearing this, financial institutions may pull back, drying up lending.

Lonski and his colleague Ben Garber, another economist at Moody’s
Capital Markets Research Group, today released a new report titled
“Double Dip Risk Rises as DC Standoff Continues,” in which they warn
that the U.S. “may be closer to a double dip recession than commonly
thought.”

The two men note that the US economy “continues to soften,” and say
that evidence is “proving elusive” of any recovery in the second half of
of this year. And that’s “assuming a reasonable resolution of the debt
standoff” between Republicans and Democrats in Washington, and
increasingly even among Republicans themselves.

“Even with a market-friendly resolution of the debt standoff,” they write, “a double-dip recession is far from unlikely.”

The new Moody’s report comes out on the same day as new data from the
U.S. Commerce Department, which is also alarming. The new government
data show that growth in the last quarter of 2010 was actually running
at only a 2.3% annual rate, not the more robust 3.1% rate initially
reported. Annualized growth rates for the first and second quarters of
this year were also revised downward by the Commerce Dept. to 0.4% and
1.3% respectively. Ryan Sweet, a senior economist at Moody’s Analytics
says, “The economy essentially came to a grinding halt in the first half
of the year.”

Of course, the over 20% of Americans who are out of work or who are
working part-time because they cannot find full-time jobs, and the
millions who have been out of work for so long that their unemployment
compensation checks have been exhausted, already knew this. They’ve been
in a recession ever since 2007, and they represent one in five of
American workers. The 40 million living on Food Stamps or going
hungry--almost one-seventh of all Americans, also knew this.

It is getting hard to find any good economic news, write Lonski and
Garber, especially with regional manufacturing statistics “hinting of
stagnation,” and with housing markets still unable to “find a bottom.”

They two economists note that the Chicago Federal Reserve’s National
Activity Index (CFNAI), in its latest three-month moving average for the
last quarter, registered a figure of -0.60. They warn that 5 out of
the last 9 times that the CFNAI fell that low, “recession was often
impending, or was already present.”

The U.S. cannot expect much help this time from the rest of the
world, either, because which most other countries are experiencing a
slowdown in growth, though not as severe as the U.S.

Many economists, and not just those on the left, worry that
politicians in Washington from both the Republican and Democratic
Parties, focused as they are now in competitive cutting of the budget
deficit, could make things worse.

As Lonski says, “Even [Fed Chairman] Ben Bernanke has said it’s very
important not to bring on budget cuts until we can be reasonably certain
that the U.S. economy is self-sustaining.”

These days, in what Lonski calls a “political theater,” many
politicians, as well as President Obama, are calling for immediate cuts
in social spending programs like Social Security, Medicaid, Welfare,
Education, etc., but Lonski warns, “The problem with the U.S. budget is
not what is being spent now,” but what is being spent over the longer
term.

The irony, he noted, is that if government inaction on raising the
debt ceiling, or government action in the form of overly-aggressive
near-term budget cutting, helped usher in a double-dip recession, it
would have the perverse effect of just worsening the debt, as tax
receipts would plunge.